CEO's Column - NORDEN News Magazine Autumn 2009

We still want growth

How can we say that NORDEN believes in the dry cargo market when we keep selling vessels – and when we have recently cancelled a contract for long-term charter of 4 Post-Panamax vessels?

Is there a schism? The brief answer to this is: No! But let me explain what we do – and why we do it.

The contract for the 4 Post-Panamax vessels was made at a time when the world economy was in full swing, but today, we would not be able to generate earnings that would match the agreed average charter hire of USD 35,750 per day. So when we got the opportunity to cancel the contracts, we obviously did that. Thus, we will be even more competitive in the Post-Panamax vessel type which we are very focused on.

With these vessels no longer in the book, we are reducing the average operating costs for the whole of NORDEN’s dry cargo fleet by USD 1,000 per day over a three-year period. And measured in forward rates, we are avoiding a loss of USD 60-70 million. So it was common sense to cancel the contract – without harming our entry into Post- Panamax. Because with 16 vessels, our and INC’s new pool will still be a large supplier of this interesting vessel type.

And then the sales: in August and September, we have sold 4 Handymax vessels, of which 2 are newbuildings, and that totals 17 sales contracts since the crisis started last autumn. And what have those sales done for us?

Liquidity: We have sold vessels for a value of USD 490 million, and after expenditure on purchase options and other costs we can deposit approx USD 370 million at the bank. This is part of the reason why we have essentially maintained our financial strength even though we have made large investments and paid out dividends this year. At the turn of the half-year, we had approximately USD 800 million in free liquidity and basically no debt.

Profits: The vessels have been sold at favourable prices, and – something which has not been that easy – through the right window of opportunity in the market. Solely this year, the sales contribute with USD 67 million to the operating profit (EBIT).

Better balance: We have reduced the exposure to a market in which the asset prices are more uncertain and far from as high as they have been. We have limited the risks by changing steel into cash. In addition, we still have a substantial order book with plenty of upside when the world market recovers.

Right-sizing: We have adjusted our capacity to match demand. We have done so in all places, also in the owned fleet, which has then increased our coverage in the remaining fleet.

Both the cancellations and sales are about one thing: Competitiveness. We do what is necessary in the difficult markets, and we are therefore even better positioned when the markets in earnest turn downwards.

There is therefore no schism, and the course is unchanged: we want long-term growth. But currently we are preparing for markets that may prove challenging for a while. And by adapting costs and investments, we are building the basis on which to grow later on.